The Central Bank of Nigeria (CBN) on
Tuesday barred nine banks from participating in the foreign exchange
market for failing to return a total of $2.334 billion of Nigerian
National Petroleum Corporation (NNPC)/Nigerian Liquefied Natural Gas
(NLNG) Company dollar deposits to the federal government’s Treasury
Single Account (TSA) domiciled with the central bank, as directed by the
presidency last year.

In addition to suspending them from the
FX market, the affected banks, according to industry sources, still face
the prospect of further financial fines, which shall be communicated to
them by the CBN in the coming days, THISDAY learnt.

However, the executives of the affected
banks have appealed the sanction by the central bank, explaining that
the remittances were delayed by the dollar illiquidity in the system and
the CBN should sell them the dollars by debiting their accounts so that
the respective amounts can be returned to the TSA.

UBA, nonetheless, not wanting to take
any chances, immediately complied with the CBN directive by transferring
the NNPC/NLNG dollar deposits domiciled with it to the TSA.

UBA, sources revealed, was able to
achieve this yesterday by asking the CBN to net off the federal
government’s indebtedness to the bank which exceeded $450 million, thus
enabling the bank to return the balance last night.

However, a CBN source said they were yet
to get confirmation of UBA’s transfer, perhaps owing to the time it was
sent, but would confirm the payment today.

Since the September 15, 2015 deadline
set by the federal government for all accounts of ministries,
departments and agencies (MDAs) with commercial banks to be closed and
remitted to the TSA, the central bank has imposed hefty fines on erring
banks for non-compliance.

First to face the ire of the central
bank last November were FirstBank and UBA, which were respectively
forced to cough up N1,877,409,905.12 and N2,942,189,651.45. The
penalties represented five per cent of the unremitted funds.

Two weeks later, Skye Bank Plc came
under the regulator’s hammer, when it was hit with a N4 billion fine,
representing 10 per cent of the funds belonging to MDAs.
Other banks that paid fines for TSA infractions last year were Zenith
Bank Plc (N60.1m), Guaranty Trust Bank Plc (N60.05m) and Sterling Bank
(N13m).

Banks React

Reacting to the latest sanction, UBA in a
terse statement last night said it had completely remitted all
NNPC/NLNG funds to the TSA.
A statement by the bank’s spokesman, Mr. Charles Aigbe, said: “Our
attention has been drawn to report of the ban of UBA from the foreign
exchange market by the CBN over the non-remittance of NNPC/NLNG dollar
deposits.

“We wish to state very categorically that UBA has completely remitted all NNPC/NLNG dollar deposits.
“We thank all our numerous customers, business partners and other
stakeholders who have reached out to us on account of this report.”

UBA was however silent on when exactly it returned all dollar deposits belonging to NNPC/NLNG to the CBN.
Also, in their reactions, the Head of Corporate Communications at FCMB,
Mr. Diran Olojo, and his counterpart at Skye Bank, Mr. Nduneche Ezurike,
assured customers and stakeholders of the banks that the matter would
be resolved.

Similarly, the spokesperson of Diamond
Bank, Mrs. Ayona Trimmel, assured the bank’s customers that the matter
was being resolved.

She explained that since October last
year, Diamond Bank had refunded $700 million to the TSA, adding that
full remittances of the balance of $287 million had been hampered by the
dollar scarcity in the financial system.

“Diamond Bank is fully in a position to
pay the naira equivalent and will comply with the CBN directive on the
outstanding dollar amount promptly,” she said.

A senior executive officer of one of the
affected banks, who spoke with THISDAY on the condition of anonymity,
further explained that the failure of the financial institutions to
comply was as a result of the on-going restructuring of oil and gas
loans.

It was gathered that there was a meeting between the CBN and the affected banks last night on how to resolve the matter.

An official of Fidelity Bank also told THISDAY that his bank had been complying with a repayment schedule agreed with NNPC.
“We got a repayment schedule which we have been meeting. Our original
indebtedness was about $500 million and it was only in June we were
unable to make a refund based on the schedule due to the dollar
scarcity,” he explained.

CEOs Appeal

However, two bank chief executives who
spoke to THISDAY last night expressed concern over the decision to
suspend the banks from the official FX market, cautioning that this
could have unexpected consequences on the financial system and increase
pressure on the parallel market, where the nine banks would be forced to
turn to source their dollar requirements.

One bank CEO, who preferred not to be
named, said: “While we are not fighting the government in its wisdom for
setting up the TSA, but we should be given time to refund the
outstanding amounts, because most of these funds were loaned to the
power sector during the privatisation programme, as well as the oil and
gas sector.

“For one, most of the power companies
are not in a position to repay their loans because of the Niger Delta
crisis, the non-availability of gas, transmission problems, and the huge
indebtedness of government MDAs to the electricity distribution
companies (DISCOs).

“Also, several of the oil and gas sector
loans were given to the international oil companies (IOCs) to cover the
gap arising from the federal government’s failure to pay its cash call
arrears.
“So if the government can fund its cash calls obligations, the IOCs will
be able to pay us back and we in turn can refund to the TSA.”

Another CEO of one of the affected banks
said the bank would need more time to readjust their risk assets,
adding: “We all have the naira to pay back but due to dollar
illiquidity, it will be hard to do so immediately.”

He suggested that the CBN provides the
nine banks with the dollars to pay back, saying: “If the CBN gives us
the dollars tomorrow, we will pay.”

One market analyst also wondered why the
same CBN which forced the states to restructure their loans to 20-year
tenures has now turned round to ask the banks to repay the dollar
deposits in 24 hours.

“If the CBN could help the states
restructure their loans, the banks should also be given the same chance
to do so to avoid any unintended consequences,” he said.

He said that it also did not make sense
for the CBN to insist that the NNPC/NLNG dollar deposits be refunded
because they would have to be domiciled with the JP Morgan overseas,
where all of Nigeria’s foreign reserves and dollar deposits are
domiciled.

“I do not understand the benefit of
taking dollars from Nigerian banks and sending them abroad to the CBN’s
account with JP Morgan. This will be counterproductive because under
Chukwuma Soludo’s headship of the central bank, he introduced a policy
that enabled some of the dollar deposits belonging to MDAs to be kept
with Nigerian banks.

“This was done to grow their balance
sheets, enable them to meet their foreign obligations and fund Letters
of Credit (LCs), and this policy was continued by Sanusi.
“So by asking the banks to refund the dollar deposits to the TSA, the
government must understand that the CBN does not domicile dollars and
will have to export it to JP Morgan abroad, effectively strengthening
those banks and weakening Nigerian banks,” he said.

In their review of the matter,
Lagos-based CSL Stockbrokers Limited in a note yesterday said that most
of the banks they spoke to blamed their inability to comply on the tight
dollar supply in the system.

“Judging from a similar event last year
when three banks (FBN, Skye and UBA) were fined for non-compliance with
TSA, we believe the CBN may impose various fines on these banks as a
disciplinary action.
“Of greater concern to us is the ability of these banks to remit these funds given the illiquidity in the market,” CSL added.

Furthermore, the investment firm pointed
out that the inability to remit these funds would mean staying away
from all FX transactions for an extended period, adding that the
inability to participate in all FX transactions, among many other
implications, would mean the loss of FX trading income for the period of
the suspension; inability to carry out trade services as Letters of
Credit (LCs) cannot be opened and this also implies loss of fee and
commission income from such transactions; and the potential loss of
customers.

“Though it is most unlikely that these
banks will resort to the parallel market to get these funds given the
huge losses that it would involve, the inability to access the official
FX market may imply that the banks meet their immediate dollar
obligations from the parallel market and this may mean a further hike in
parallel market rates,” the firm added.

More Sanctions Loom

Meanwhile, the CBN is currently
investigating the activities of exporters and banks that aid them in
carrying out illicit FX transfers under the guise of free funds.

Free funds is a term used by banks that
aid illicit transfer of funds for FX recipients that sell foreign
currencies to buyers who do so without providing documentation in breach
of CBN regulations requiring all users of FX to do so.

According to banking sources, the
implication of dealing in free funds is that the official FX market is
deprived of liquidity, thereby limiting FX supply to the market.

The CBN recently issued a circular forbidding banks from conducting free funds transactions for exporters.
It is estimated that by the illicit activities, the FX market is
currently deprived of up to $6 billion annually, said an industry
source, adding that in an environment of FX scarcity, the central bank
intends to curb the activities of illicit exporters in the country.

This investigation, he explained, was
triggered after CBN’s discovery that the inflow of FX proceeds by
exporters had dropped drastically.

He said: “In order to rein in exporters,
the CBN is in the process of strengthening its export regulations by
forbidding exporters using Bills of Collection and open accounts in
conducting their export businesses.”

Investigations by THISDAY further
revealed that some exporters recently perfected a scheme that would
enable them export goods from the country without documenting the
transactions.

This is done with the aid of some
unscrupulous customs officials at the country’s export terminals who
deliberately allow the export of goods without documentation.
Investigations also revealed that large exporters, particularly those owned by foreigners, are involved in this scam.

The source disclosed that large
quantities of cocoa, hides and skin, cashew and Gum Arabic are exported
through these illegal channels without documentation by the exporters.